Stock Market Sentiment. What A Difference A Day Makes....

Stock-Markets / Stock Index Trading Dec 09, 2009 - 05:45 PM GMT

It is amazing how fast things can change. Yesterday seemed so gloom and doom and now, after today's action, things look much better. When you're in a trading range such as we are, and it's tough for sure, you have to keep perspective on the up as well as the down days. The up days may give a bit too much optimism, yet, the down days do the same in reverse. Yesterday got a lot of folks very bearish. The emotion of a very difficult consolidation.

We spent some days near the top of the range at roughly 1110/1119 and then pulled back once the daily charts got overbought some. Now we've pulled back all the way near major 1085 (hit today) on the S&P 500. 1085 being horizontal support now hit four times. 1078 is also the 50-day exponential moving average just underneath. Once we hit 1085 a few times intra day the market found the necessary bid to keep the bears at a safe distance from breaking things down.

We moved up as the day wore on and closed at 1095 on the S&P 500 with a doji in place off the down trend meaning we should move higher from here, at least very short-term thus the reason for being long, not to mention positive divergences forming in many places on the 60-minute time frame charts. This doesn't mean we're about to break out either but it means the consolidation continues a day after things looked ready to break down according to many out there. A bad day in the pattern does not equate necessarily to doom. It can look scary, I know, but that doesn't mean a thing. It's all noise until the 50-day exponential moving averages go away and that's not about to happen in my opinion.

Amazing to see what happened with Apple, Inc. (AAPL) today. Up 8$ after it broke down two days ago. That's just stunning. The bears had the market and this stock down on their knees when out of nowhere comes today and the unbelievable action in AAPL. Tells me that this market will ultimately make another leg higher, but again, when it's ready and not when I necessarily would like it to. Patience is the way. You have to respect this type of recovery off the bottom and now Goldman Sachs Group (GS) is looking better as well with a nice divergence on the 60-minute chart. In other words, the recently broken aren't nearly as bearish tonight as they were just one day ago. All of the negativity in those leaders yet the market managed to rotate the money around enough to keep it from breaking down while these stocks worked on recovery.

If you study the charts tonight you will notice a common theme. Most of the index charts pulled off the tops but held about half way down their wedges when they were met by those 50-day exponential moving averages. It's more bullish when you hold at those 50's when a doji is printed because it signifies that the buyers have caught up to the sellers where they should if the market is still in a more bullish trend. Quite often it's how you get to those 50's. If you get there on big volume with a full red candle, then that's more of a red flag. If you get there on declining volume and form a doji then the bulls can hold on to a lot more hope about the future. It's by no means a guarantee, especially in this crazy market, but you have to respect that type of message.

It's time for the financials to lead a little bit if this market has a real chance to recover. If we study the 3x plays, those being the FAZ (bearish) and FAS (bullish), we see doji's off the up-and-down moves they've just had. This suggests the financials should perform well over the next few days and this should really help the market. The FAS put in a doji and closed above its open while the FAZ also put in a doji today and closed below its open. Each one off a trend in place. I don't know if it's sustainable yet or just short-term reversals. I'll have to watch the action to determine things, but the close on the FAS and FAZ suggests, with some vigor, that the financials should go higher in the very short-term at least. Remember, they're hated and that's good.

This is still NOT a market that says get your long-term portfolio ready. Not one bit. The market action today suggests a near-term move back up and nothing more. You know I feel that we'll have another leg up before we come back down again but you can't just go out and buy haphazardly. That would be inappropriate. We still have red flags and we're still in that nasty lateral consolidation. Deal with that reality and play it smart. If we blast through 1119 on the S&P 500 with force and big volume, that would suggest some type of new leg up. Don't anticipate it. Let it happen. Then we hit the market harder with plays.

Peace

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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